Chinese port company warns Australian review increases sovereign risk


A Chinese company with a 99-year lease in Darwin has warned that its treatment in the hands of the Australian government may scare investors from other countries.

Landbridge, a Shandong company founded by billionaire Ye Cheng, learned of a security review of its Northern Territory business last month, which it acquired in 2015 for A$506 million (US$380 million).This development is a sharp deterioration in the relationship between Canberra and Beijing as well as Collapse Since 2016, Chinese companies’ investment in Australia has reached a peak of A$16.5 billion.

“As a foreign investor, my problem is that the government approved us and we have experienced very painful [review] In the process, no one has come up with any specific problem for five years,” Mike Hughes, Landbridge Australia The managing director told the Financial Times.

“We are not the Chinese government, we are a private company. If the review forces us to sell port leases, it will definitely increase the sovereign risk of any foreign investors who are concerned about Australia, not just Chinese investors.”

This controversy sparked a fierce debate debate Between the Australian security hawks and pro-business forces. The latter feared that Landbridge’s decision to force the sale of leases would threaten foreign investment.

The hawks countered that allowing a Chinese company to control important infrastructure in the Asia-Pacific region is risky.

A group of 15 right-wing parliamentarians also targeted China Merchants Group, a state-owned enterprise that owns a 50% stake in Newcastle Port, the world’s largest coal port. Last week, the organization asked the government to pay close attention to the port, saying that the stake gives “the Chinese Communist Party a geopolitical advantage in Australian coal exports”.

As the anger against Chinese investment intensified, the opposition Labor Party criticized the conservative government’s handling of Sino-Australian relations, believing that it was inciting “nationalist sentiment” for election benefits.

“Federal rhetoric about conflict and trade retaliation can and must stop,” Western Australia Labour Party-led state government Prime Minister Mark McGowan told business leaders last week.

In May, Canberra announced Review Whether to cancel the controversial lease of Darwin Port, which is close to the US Marine Corps base in Australia’s sparsely populated Far North. Prior to this, it was decided in April to cancel the two “Belt and Road” agreements between Victoria and Beijing, which is the core of President Xi Jinping’s foreign policy.

“My thought is that when a decision is made in 2015 [on the port lease] The situation is very different from 2021,” said Peter Dutton, the Australian Minister of Defense, when announcing the review.

The decision to lease Darwin Port to Landbridge caused concerns in Washington, while the Australian Institute of Strategic Policy, a think tank, claimed Landbridge had links to the Chinese People’s Liberation Army and the Communist Party. Landbridge said it is a commercial entity, and this criticism is unfair.

Many analysts believe that the government will require changes to the lease.

“For example, Canberra can conduct a six-month security review of the lease,” said Richard McGregor, an analyst at the Lowe Institute. “Or they can take the nuclear option, which will also be an expensive and riskier option, which is to completely tear up the lease.”

McGregor said Beijing will almost certainly retaliate, despite the limited Australian investment of similar nature within China. Sanctions have been imposed on a series of Australian exports.

McGregor said: “Compared with the decision to introduce foreign investors into Australia’s sovereign risk, retaliation is more important.”

Due to stricter scrutiny of transactions and the deterioration of bilateral relations, Chinese companies have become cautious about transactions in Australia. Chinese investment fell 61% According to data from the Australian National University, it has fallen from A$2.6 billion a year ago to A$1 billion in 2020.

The histogram of foreign direct investment (AUD billion) shows that China's investment in Australia is gradually decreasing

Landbridge’s Hughes said the mandatory divestment could weaken Asian investment in Australia.

“Obviously, if you are a U.S. company, you won’t worry that much. But, you know, foreign investors from some other countries, they know how things will change in ten years or more,” Hugh Said.

Analysts are divided on whether tearing up the Darwin Port lease will significantly change the sovereign risk environment of non-Chinese companies.

“As far as Darwin Port is concerned, there are obviously special and external factors at work,” said Jeffrey Wilson, research director of the Perth American Asia Center.

Nonetheless, business leaders urged caution and urged Canberra to readjust its relationship with China, which is the country’s largest trading partner, with bilateral trade valued at 251 billion Australian dollars in 2019-20. Some people worry that tearing up port leases could fatally damage bilateral relations and disturb overseas investors.

“The consequences will lie outside China,” said Andrew Robb, the former Australian Minister of Trade, who oversaw the negotiations for the China-Australia Free Trade Agreement reached in 2015.

Rob was a paid consultant for Landbridge and other Chinese companies when he left the political office. He said Canberra has every right to reassess the port lease in light of the changing strategic environment.

But he warned that Australia-China political relations have “turned to cream,” and commercial relations may follow.

“In some cases, the tone did not take into account the sensitivity of the Chinese side,” Rob said. “For China, some things have been brewing for thousands of years, such as face.”



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